Agency Says NYRA Violated State Law

NYRA violated state law on a no-bid contract, a state investigative agency claims.

The New York Racing Association violated state law for its no-bid contract with a politically connected law firm, a New York state investigation has found.

The Commission of Investigation said the NYRA deal with Getnick & Getnick broke the state’s racing law. Neil Getnick, whose firm is getting $125,000 a month under the contract from the financially ailing NYRA, had previously served as a court-appointed monitor of NYRA’s operations during the racing group’s legal troubles with the federal prosecutors.

The SIC, as the state investigative panel is called, is a six-member board appointed by former Gov. George Pataki and the two legislative leaders. The investigation also found that state law does not give the proper authority to New York State Racing and Wagering Board or another state oversight panel to block NYRA from violating the no-bid laws.

“Despite claims by NYRA and Getnick & Getnick that the law firm could be hired as a sole source without competitive bidding, the commission strongly disagrees,” SIC chairman Alfred D. Lerner said. “While Neil Getnick told the commission that his firm was unique because of its prior relationship with NYRA, the commission found that NYRA had employed other business integrity consultant firms, and that Getnick & Getnick was not the only firm qualified to provide integrity consultant services to NYRA.’’

Lerner said NYRA could have gone through a competitive bidding process, and it would have been reasonable that Getnick get the job. “By violating state law and not having a competitive bidding process, NYRA needlessly invited doubt about the contract award’s legitimacy," Lerner said.

NYRA and Getnick could not be immediately reached for comment.

The law requires that all contracts for goods and services more than $250,000 must go through a competitive bidding process. Last July, NYRA signed a five-year contract for $1.5 million a year.

The release of the investigation comes as NYRA has still not emerged from Chapter 11 bankruptcy protection, and just days after NYRA reported a 2007 net operating loss of $34 million.

The SIC investigation began last October after questions were raised about Getnick’s “business integrity consulting contract" with NYRA. The SIC report released April 2 went through a litany of NYRA’s legal troubles, beginning with the 2000 investigation by the state attorney general and state police into a money-laundering schemes by pari-mutuel tellers.

When NYRA was later indicted by the U.S. Attorney’s office on fraud and other charges, part of the deal to avoid prosecution was the appointment of Getnick as an independent monitor of its finances and operations. NYRA in the past has argued that professional services, such as legal work, are not subject to a provision in the state law that governs NYRA’s obligations to competitively bid contracts. Getnick himself, during his days as a federal monitor, dismissed that stance by NYRA, according to the SIC report.

NYRA last year defended the no-bid deal with Getnick, saying the firm offered “unique" services that other firms could not provide. But the SIC said there are at least 38 public-integrity consulting companies that could have been a part of a bidding process.

In his testimony before investigators, Getnick said the racing and wagering board did not specifically oppose his contract, and that it was subsequently approved by a federal bankruptcy judge overseeing NYRA’s Chapter 11 procedure. But the SIC said the racing and wagering board and a separate NYRA oversight board do not have the legal authority to prevent NYRA from entering into no-bid deals. The SIC report encourages the state legislature to amend the law to give the regulatory agencies new oversight powers.

It is unclear what, if anything, will happen as a result of the SIC findings. The SIC itself notes that the racing and wagering board does not have the legal authority to revoke NYRA’s contracts – something the SIC said should also change. The extent of the racing and wagering board’s powers are to either fine NYRA or revoke its franchise, the SIC said.

It's not the first time NYRA has been criticized for breaking no-bid contract rules. In this case, the SIC found, NYRA “has invited doubt as to the legitimacy of this contract award."

In response to the findings, the state’s chief racing regulator said April 2 Getnick should resign as NYRA’s integrity counsel. “If I were them, and now that this is supposed to be about their integrity, Mr. Getnick should resign," said Daniel Hogan, chairman of NYSRWB.

Neither of racing board’s two possible responses to the SIC investigation – fine NYRA or revoke its franchise – are viable, the chairman said. Hogan, noting a $105-million state bailout of NYRA and the racing group’s continuing financial problems, said any fine of NYRA would end up being subsidized by state government funding.

Revoking the franchise, he said, would be a “nuclear option" that the board would not take.

Hogan said the board notified NYRA last year that it was violating the law with the no-bid Getnick deal. “They ignored us when we told them they were in violation of the law," Hogan said.

Hogan said the concerns were not just about the no-bid aspect of the deal, but what he called a conflict of interest by Getnick because he previously served as NYRA’s outside monitor during its legal troubles with the federal government. Hogan said the agency did not officially oppose the Getnick contract before a federal judge last year out of concern of damaging NYRA’s bankruptcy case.

“But we put it in writing that they violated the law," he said, noting the agency believes it was vindicated by the SIC’s findings.

Hogan, who once served as the state’s chief procurement officer in a different agency before coming to the NYSRWB, said NYRA had no reason not to follow the bidding rules. “It would have been very easy for them to do this under the procurement law," Hogan said.